UPSC Prelims 2023 · Question 93 of 97

UPSC Prelims 2023 question on Beta Stock Volatility

In the context of finance, the term 'beta' refers to

  1. the process of simultaneous buying and selling of an asset from difference platforms.
  2. an investment strategy of a portfolio manager to balance risk versus reward.
  3. a type of systemic risk that arises where perfect hedging is not possible.
  4. a numeric value that measures the fluctuations of a stock to changes in the overall stock market.
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Answer: D. a numeric value that measures the fluctuations of a stock to changes in the overall stock market.

Beta (β) is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole.

Equities having a beta value larger than one, or high beta stocks, are often known as volatile stocks. The slightest adjustments in stock market indicators have a big influence on them.

A security that is comparatively more stable is a low beta stock, i.e. has a beta rating below 1.

Therefore, beta is a numeric value that measures the fluctuations of a stock relative to changes in the overall stock market.

Hence option (d) is the correct answer.

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